The Transit of Venus

Bill mourns the passing of an old friend.

Hearts that are broken, dreams left undone…
These are just part of the game…

– Leo Kottke, folk singer

An old friend died…

We had called him a few weeks ago; we just wanted to say goodbye.

We should have said thanks too. Because Bob Kephart was practically the founder of our entire industry. In the 1970s he began a financial newsletter called the Inflation Survival Letter. He warned against the double-digit inflation of the period-before-Volcker and showed readers how to cope with it. Later, when inflation rates headed down, the letter became “Personal Finance,” which continues to this day.

At one time or other, almost everyone in the business worked for Bob or with him. He was a demanding man who drove himself and everyone around him to do better, to think clearer, to work harder. But he had a sentimental side, too. He couldn’t resist trying to help people he knew – even when they were beyond help. He was the person people turned to when they needed to be bailed out of jail, rescued from a hopeless business deal, or restored after a broken heart. He always had the courage to help people – even those who had been disgraced, dissipated themselves, and been abandoned by their friends.

Then, when the objects of his charity sometimes disappointed him, he would send a letter: “I thought you were my friend,” he would write. Bob took it all personally and was profoundly disappointed when others failed to measure up to the help he had given them.

Bob was a scrapper. Attacked by cancer, for three long years he studied his enemy and tried to find his weakness. He read all he could find on the subject, and talked to experts wherever he could find them. Cancer was a problem; he would do all he could to find a solution.

He had been to clinics all over the country, as well as in Buenos Aires. In a last-ditch effort, he went to Mexico for an experimental, do or die procedure. The experiment didn’t work.

Bob said he had never seen evidence of God. But God could not have missed Bob. He used his heart and brain fully…working so hard he must have worn them out. He never backed down from an idea, never abandoned a friend, and never surrendered. If God was going to take him, He would have to fight for him.

On Tuesday, it was over. Bob’s transit through this life ended about the same time Venus made her rare promenade between the sun and the earth.

Bob’s death put us in a reflective mood. Why, we wondered.

It was a big ‘Why’ we had in mind.

“Seratonin,” was the answer we got.

“It’s why the transit of Venus makes a difference to stock prices,” said the editor of England’s Moneyweek Magazine,’ Merryn Somerset-Webb.

“It’s a proven fact,” Merryn went on, “that the sun, the moon and other heavenly bodies affect the amount of seratonin in your brain. Seratonin affects your mood. That’s why astrology really is a useful tool for predicting stock market trends.”

Some people are eternal optimists. Others see clouds wrapped around every silver lining. Some will hold losing positions to the bitter end. Others will always give up without a fight and move on. But most people are open to suggestion. They can be swayed by the news, the weather, the stars…even campaign advertising.

“The Transit of Venus across the sun on Tuesday,” Merryn explained, “is a very bad omen. I read it in Barron’s.”

“Henry Weingarten has one of the best forecasting records on Wall Street. He runs something called the “Astrologer’s Fund.” I guess he bases his selections on the stars. Whatever he is doing, it must work. Because he’s famous for being very, very right. He forecast, almost to the day, not only the collapse of the Nikkei after the bubble of the 1980s, but also the Hong Kong crash in 1997 and the bursting of the technology bubble in 2000.”

“Weingarten says the position of the planets at the moment raise ‘the specter of violence.'”

Merryn had answered the ‘how’ question, not the ‘why’ question. It reminded us of the conversation we had with Bob before he died. He had explained how the cancer was killing him. We had wondered why.

We might as well have asked Venus to explain herself.

A Russian billionaire was quoted on the subject in the London papers:

“I was very happy with my first wife, very happy with my second, and now very happy with my third. The simple truth is that each time I fell out of love. Love becomes habit after you have babies. Your wife becomes not just your sexual object, but also your friend. But then one day, you feel she is just a friend; you’re no longer in love. I follow my obligation to look after my children and ex-wives financially, but not an obligation to stay in love. It’s not possible for me to have a sexual act when I’m no longer in love.”

Oh Venus…where are you leading us!

Even after all the studies of hormones and evolutionary biology, the heart’s secrets are as well hidden as ever. The ‘why’ is always out of reach.

On June 8 also, a shriveled little heart, in a crystal jar, also finally ended its long transit. A chunk of it had been cut out and subjected to the latest DNA testing. Using a strand of Marie-Antoinette’s hair, scientists found that the heart was truly that of Louis XVII, the “lost dauphin,” who died in a rank prison cell at the age of 10, after his father and mother had had their heads chopped off.

Again, science has enlightened us. We know more of the how…but still not the why. The poor little boy was innocent. He had not lived long enough to make a fool of himself. Why would anyone want him to die? In his final months, he sat in his cell, wheezing from tuberculosis…staring blank-eyed and shuffling a deck of cards. History tells us he died in the arms of the one and only guard who had the heart to comfort him, for he was the son of a hated king.

We do not know anything about the guard. But we have a feeling, unless the hope of heaven is an empty promise, Bob will find him.

“What is the meaning of it all,” Bob had wondered on his deathbed. “I don’t know. I’ve spent a lot of time thinking about it as I’ve been fighting this thing. And now the fight is over…

“I hope to see you on the other side…we’ll meet again in a great assembly of the saints…a lot of platitudes…
I don’t know what’s coming. But, I’m ready for it…”

The fight was over. But Bob could not surrender. Now, drugged and weak, he gave a report, sounding more and more liked a German general informing headquarters from the Eastern Front:

“The cancer is advancing along the liver line,” he told us. “Pockets have been found in the lungs. The incursions into the brain and backbone are growing larger. We have ceased all treatment.”

With that, he blew up the ammunition and spiked the cannon. God had his man.


Bill Bonner
for The Daily Reckoning
June 11, 2004

P.S. ‘Rest in Peace’ does not seem the appropriate send-off for a man like Bob. He never sought peace or comfort. What he wanted was engagement; he wanted to set things right and was willing to work as hard as he could to get the job done.

He is probably in heaven now, trying to get the place to shape up. Go to it, Bob. May God be with you.

This past week was a good one to die; you would have been in such good company. Ronald Reagan, Ray Charles, Robert Kephart…(more below)

But the diehard American consumer is still standing. The man can take a punch.

Like a half-smart prizefighter, he may be the victim of his managers’ fraud…and his own conceit. It is a little sad to see him now – delusional…but still on his feet.

“We are not especially optimistic about the U.S. dollar,” we began a conversation with an analyst in London at a reception in Hyde Park.

“The twins?”


There was no need to say any more. We understood each other completely. The twins he referred to were America’s twin deficits – trade and federal budget. Together, they approach almost $1 trillion a year. They cannot grow forever. Therefore, they must shrink. But how? The traditional route, as well as by far the most likely, includes a big drop in the dollar.

The dollar may not go down sooner. Too many people need dollars to pay their debts. But it will almost certainly go down later.

“The dollar’s status as the world’s reserve currency is under threat,” he writes in the Prospect. For years, he explains, the willingness of big exporting Asian countries to buy dollars has allowed the U.S. to run a huge trade deficit, but this policy has now undermined the dollar’s strength. While there was no alternative, this did not matter. But now, there’s a “new kid on the monetary block”: the euro. “Despite the flaws of its parents,” the euro is a serious contender for the top job of reserve currency. At 16%, the E.U.’s portion of global output is not that much lower than America’s 21%. More important, the E.U. runs a current-account surplus. That may be why, over the past five years, more international bonds have been issued in euros than in dollars. No monetary system lasts forever. The days of the dollar standard are numbered.

So are those of the economy that exports them. Despite the biggest ‘stimulus’ in world history…U.S. stocks have gone nowhere in 6 years. The U.S. economy, widely reported to be in recovery, is kept alive with massive doses of new cash and credit, especially mortgages at adjustable rates. Like a bare-knuckle fighter in a backyard ring, a swig of whiskey gives him a welcome jolt. Even in the final round, he comes out swinging. But the exertion leaves him weaker and more vulnerable than ever before. In real terms, the American male householder earns less than he did a quarter century ago. And each dollar he takes in now has twice as much debt-service waiting for it.

The latest reports suggest his knees are beginning to quake and buckle. (We’ve said that before; there’s no need to remind us.)

Today…tomorrow…or months from now…the poor man is going down.

‘Take a dive’ is our advice. ‘And pray you can still get up after the fight is over.’

And now, from Eastern Standard Time, comes more news:


Tom Dyson, reporting from the “Town that fooled the British”…

– St. Michaels is a charming town on the Eastern Shore of Maryland. In the War of 1812, British ships approached the shore to bomb the little town to smithereens. But the crafty locals tricked the gunners by hanging lanterns high up in the trees. The British heavy artillery landed harmlessly in the wilderness, beyond the town.

– We were here for a two-day seminar to discuss investing and business…yesterday, we found ourselves on the golf course. We would have played alone, but in the group ahead, there was an elderly couple. The gentleman was playing golf and his companion was driving the buggy. They kindly invited me to join them for the round. I accepted.

– As you will be very well aware, dear reader, your humble editors at the Daily Reckoning have strong opinions on the markets. But in polite company, we always keep our opinions to ourselves. In fact, we prefer to listen. Especially when we’re in the company of two people with 164 years of accumulated wisdom between them.

– As a testament to their humility, Hank and Ella-Louise were far more interested in hearing my opinions – someone with only a fraction of their experience – than they were in talking about their own. By the 9th hole, the conversation had turned to stocks. By the 18th hole, Hank had decided to sell his entire portfolio of mutual funds and invest in 13-week T-notes. We hope it wasn’t something we said.

– As part of the seminar’s agenda, we were all charged with bringing an investment idea to the table. Following our experience on the golf course, we suggested selling stocks and buying 13-week T-notes, which, from now on, we will loosely refer to as cash.

– As we keep reminding you, dear reader, we see no value in the stock market. We have difficulty believing that a new bull market is upon us. In fact, we think the stock market stinks. Long-time sufferers of the Daily Reckoning will know the reasons for this opinion…we see many banana skins lying in the market’s path…interest rates, terror, oil, China, debt, houses amongst others.

– What may require further explanation, however, is our inclination towards cash. Aren’t interest rates undesirably low, you ask? Isn’t inflation running well over 1%, making cash a losing proposition? Isn’t the U.S. dollar in a decade-long bear market? Yes, yes and yes. So why on earth, dear reader, would we select cash as our investment idea for the seminar? The solution is simple.

– Here at the Daily Reckoning, we think like contrarians. We do what no one else does, we buy what no one else wants. We like to play devil’s advocate. When supply is great, and demand is little, we buy. We can’t think of an asset that fits the bill more accurately than cash, at least in the short-term. Last year, only four currencies failed to beat the dollar, and three of them were pegged. The Mexican peso was the real black sheep…we should probably buy that too.

– After all, who wants to hold cash these days? Cash burns a hole in the pocket; it wants to be speculated; it wants to buy houses or tech stocks or even consumer goods. But no one wants to store it in the bank, except us…if we had any!

– And how did the group respond to your editor’s suggestion? They hated it. They laughed at us. They said we were foolish. They said this would be a decade of inflation…we agreed.

– Yesterday, the latest snapshot of Uncle Sam’s balance sheet shows a deficit of $344 billion dollars, generated in only the first 8 months of the 2004 budget year. The dollar retreated, although we doubt the news had much effect – it is historical and already priced into the market. We suspect yesterday’s 1% decline – lifting the Euro back above 1.21 – was nothing more than a snapback after Wednesday’s dramatic 2-cent sell-off.

– On Wall Street, stocks bounced. Yesterday they sold off, today they rally. The Nasdaq added 9 points to close at 1,999.87, while the Dow closed at 10,410. All three major indices gained nearly 0.5%.

– Hank, the stalwart octogenarian, beat your editor at golf, even notching up a couple of birdies.


Bill Bonner, back in Paris…

*** “I just woke up about an hour ago,” writes our good friend and colleague James Boric, having just touched down in India. “So I don’t have much to report just yet…but I will anyway. Rice prices are skyrocketing here in Asia. I heard a BBC sound bite about it on the way to Bombay. China is shortly expected to be a net importer of rice. That could spell a pretty neat little opportunity for people looking to make a buck on rice stocks.”

*** Jules has his last day of school today. He goes to the American school. The younger boys, still in the French system, keep going until July.

Poor Edward. He must be the George W. Bush of our family; better suited to the life of a cowboy than that of a scholar. When he got home from school yesterday, Madame Lenotre, his tutor, was already waiting for him. When she left, his mother took over and kept going until late last night. And again this morning he was going over various verb tenses we had never heard of. Elizabeth is determined, almost desperate. The boy must do well on his tests this year in order to get into good school next year.

*** Inflation? Correspondent Byron King remembers prices a lot lower:

I remember my first pre-season football camp back in the summer of 1969.

I would hitch a ride to school every day with a couple of the older guys, one of whom, named Dennis, had a set of wheels – a wrecked and repaired 1966 Mustang. After a couple of days of driving me around, Dennis said: “Hey Byron, how about if you buy me some gas for all the driving I’m doing.” It was OK with me, so we pulled into a gas station.

Dennis pulled up to the pumps and the station attendant came out to greet us (remember that?). Dennis squinted at the pumps, looked at the attendant, then at me. He turned to the attendant and said: “We’ll take a dollar’s worth.” One dollar. I reached into my pocket and pulled out four quarters, and handed them to Dennis, who handed them to the attendant. The attendant pumped something over seven gallons of gas into the tank, at a price of 13.9 cents per gallon. And that was for the high-test gas. Dennis turned to me and said, “Since you are paying, I’m getting the good stuff.”

Yesterday, I paid $30 for something like 14 gallons of mid-grade. That is about $15 for a quantity of gas that used to cost $1 back in ’69. So, by my math, the U.S. dollar buys one-fifteenth as much gas today as it did 35 years ago. That is a 94% decline in purchasing power. Had I put that dollar into a piggy bank back in 1969, today it would be worth about 6% of its former value. Unadjusted for inflation, you have to earn 15 times as much nominal income, just to be able to purchase the same tank of gas as before.

Since the setting up of the Federal Reserve in 1914, 90 years or so, the value of the dollar has dropped 96%.

Yes, yes, yes…I know that we have a different economy today, in which you can use your depreciated dollars to purchase things that simply did not exist at any price in 1914. In that latter respect, goes the argument, your dollars are worth infinitely more today than they were long ago. In 1914, if you were sick, you could not buy some life-saving medicine at any price. Today’s depreciated dollars buy a higher standard of living than those of old, so that even the working poor have conveniences that Mr. Rockefeller or Mr. Frick could never have enjoyed. But that use for dollars, as units of purchasing power and a means to settle current debts and exchanges, is only half of the coin. Had the dollar never depreciated, don’t you think that somebody would still have invented hot-water plumbing, the color television or viagra?

The other half of the coin is that dollars should be a means of saving the value of one’s work. That is, you work, earn income, spend not-quite-all of it on living your life, and you save the balance.

Later, you take your accumulated savings and invest them in some income-producing capital project. You better the world in general, and yourself in particular. Or this accumulation of funds is what you live on when you retire and you can no longer swing a pick every day in the quarry of life. But inflation robs savers and depreciates past investment. No, in 1914 you could not have purchased a polio vaccine or a flat screen TV, because there were no such items. But you could have saved your money, in the hope of purchasing something else, years later, with the fruits of your accumulation. Except that years later, your
1914 dollars were worth a smaller and smaller fraction of their former value. The incentive in all of this is to drive people out of long-term savings and into immediate consumption, and not to save because saving is for suckers. But without large amounts of internal savings, where does a society obtain its investment capital? It eats the proverbial seed-corn and has to rely on outsiders for loans or credits.

In addition to the depreciation of the dollar, we have seen a depreciation in the value of what it buys. And it seems that we have seen a depreciation in the value of…values. By comparison with the distant past, money is so debased these days that we know longer know what we are buying. Nor do we seem to care. And this cannot be a good thing for the long term survival of the society.”

The Daily Reckoning